In 2020, the median down payment on a home was 12 percent for all buyers, the National Association of Realtors® found. It was lowest for first-time homebuyers, at only 7 percent, and highest for repeat buyers at 16 percent. (Dec 14, 2020)
There is so much misinformation that I always diligently keep fresh information out there for those searching to buy a home. There are many variables to getting a mortgage loan but the top concern would be the need to speak with a loan officer to get the most accurate info. Because everything is always correct on the internet, right?
Maybe you already have a down payment amount in mind? Here’s a look at the minimum requirements of some common loan types.
Conventional loan: 3 percent – 5 percent
Conventional loans backed by semi-governmental lenders Fannie Mae and Freddie Mac can require just 3 percent down, but they may have some income restrictions and stringent credit requirements to qualify. Lenders often require 5 percent to 15 percent down for other types of conventional loans.
When you get a conventional loan with a down payment of less than 20 percent, you have to pay for private mortgage insurance (PMI). The monthly cost of PMI varies, depending on your credit score, the size of the down payment, and the loan amount. Note that some lenders might waive PMI, but they often charge a higher interest rate to account for the greater risk.
FHA loan: 3.5 percent
For an FHA loan insured by the Federal Housing Administration, the minimum down payment is 3.5 percent. That means you’ll receive the maximum financing FHA offers at 96.5 percent, but you need a FICO score of at least 580 to qualify.
FHA loans come with an upfront mortgage insurance premium (MIP) and annual MIP.
The upfront MIP is 1.75 percent of the base loan total and the annual MIP varies by the length of the loan and how much you put down. For 30-year fixed-rate loans with an LTV less than 95 percent, you’ll pay 0.80 percent, or 80 basis points. The same loans with an LTV higher than 95 percent have an MIP of 0.85 percent, or 85 basis points. Those numbers will be higher (100 and 105 basis points, respectively) for loans worth more than $625,500.
You can make a higher down payment than the minimum on an FHA loan. To encourage that, the FHA charges lower borrowing costs if your down payment is 5 percent or more. One difference between the FHA and private mortgage insurance is that the FHA doesn’t charge more to people with lower credit scores.
There’s a notable drawback to putting down less than 10 percent on an FHA loan. When you do this, you cannot cancel annual mortgage insurance premiums; you’ll pay those for the life of the loan or until you refinance or sell.
VA loan and USDA loan: Zero percent
The U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) guarantee zero-down payment loans for qualified homebuyers.
VA loans are available to most members of the armed forces and veterans. USDA loans are available in designated rural areas. The USDA has maps on its website that show which areas are eligible.
With both loan types, you borrow from a regular lender, but the VA or the USDA guarantees the loan. There is no mortgage insurance, but you’ll likely have to pay a funding fee or guarantee fee.